Abandoned Baby

The Abandoned Baby is a rare bearish reversal pattern characterized by a large move up followed by a doji or small candle, and then a third candle heading in the opposite direction.

The formation reflects a classic three period reversal of market sentiment where after a bullish trend; enough sellers enter the market to take control. They first stop the trends momentum (doji), and then ultimately reverse the direction of the market.

This first bullish move suggests a continuation of the bull market. That move is followed by a doji, where markets trade in a small range suggesting uncertainty in trend and sell off potential. Up to day two we actually have a Doji Star, moderate strength bearish pattern. After the day of indecision, a large bearish candle confirms the sell-off and reversal. The stronger the move down day-three, the stronger the reversal signal. Watch for additional bearish price action in the next few days.

In Foreign Exchange this pattern is near identical to the Bearish Evening doji Star pattern. Outside of the FX Market Abandoned Babies require gaps between the close and open prices of subsequent candles and shadows. In fact the name Abandoned Baby suggests the doji baby candle is disconnected from the rest of the formation. This is possible because gaping is common in other less efficient markets where trading is restrained by business hours. Since the currency market offers 24 hour trading, gaping is rare and is only seen to a minor degree after weekends.